NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Risk Management
Which of the following is a key purpose of a broker's pre-trade risk control (such as order value or quantity checks) in an online trading platform?
Pre-trade risk controls such as order quantity and value checks are meant to stop erroneous or excessively large orders from reaching the exchange. They do not increase order rates, remove the need for margins, or guarantee profit.
- ATo increase the number of orders placed per minute
- BTo prevent erroneous or excessively large orders from reaching the exchangeCorrect
- CTo avoid the need for margin collection
- DTo guarantee profit on each trade
Explanation
Pre-trade checks on order size, value and price bands block fat-finger and unauthorised excessive orders before they go to the exchange. They do not replace margins or guarantee profits.
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